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Apple TV Is “Irrelevant,” Piecyk Says: iPhone Wars, iPad Sales Hold Keys to Firm’s Fate

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Apple's (AAPL) Worldwide Developers Conference (WWDC) is set to start Monday in San Francisco with Tim Cook expected to take center stage at 1 pm EST for his first-ever WWDC keynote as CEO of the company.

Due to the level of secrecy maintained by Apple, which some consider the recipe for the company's success, there is always a tremendous amount of hype, anticipation and rumor-mongering about what new products may or may not be unveiled during the keynote presentation. One tech blog recently wrote:

"If Apple actually unveils everything we expect, WWDC 2012 will introduce 14 new Mac models, 12 updated Apple accessories, the release of Mac OS 10.8 "Mountain Lion," and the unveiling of iOS 6."

If that prediction is right, many Apple aficionados may be left salivating for more information about the iPhone 5 and the Apple TV. But it's really anybody's guess as to what new Apple products and upgrades will be announced, especially after Cook recently declared, the following at the D Conference hosted by All Things D:

"We're going to double down on secrecy on products, I'm serious."

"Maybe more secrecy means that they are going to shock us with some new aggressive product roll out," says Walter Piecyk, Apple analyst at BTIG Research, referring to the Apple TV or something that is not even on our radar.

However, he tells Aaron in the accompanying interview it is a much safer bet to expect a "refresh" on the Mac Books and software on Monday and the Apple TV in 2013.

Apple iPhone vs Apple TV

While the world is watching to see what "revolutionary" product Apple releases next, investors are more interested in the evolution of the iPhone and the iPad tablet, says Piecyk.

"The Apple TV is irrelevant in the grand scheme of things," Piecyk says. "I think what matters to investors is profit growth…. [and] the things driving profitability [are] the iPhone and the iPad."

iPhone sales currently account for 50% of Apple's revenues.

Smartphones account for just 34% of all global handset sales, which means emerging markets are a huge growth opportunity for the iPhone, says Piecyk. He also notes that a mobile phone will be much easier to sell in emerging markets compared to the next rendition of Apple TV, which could potentially cost upwards of $1,000.

Apple iPhone vs Samsung Galaxy S3

The iPhone faces major external competition too. And there is a serious battle brewing between Apple and Samsung.

Apple has sued Samsung to stop the U.S. release of Samsung's new Galaxy S3, which is set to go on sale June 21. Apple charges Samsung with patent infringement on two counts. The S3 already had a very successful debut across Europe and Australia at the end of May. (See: Samsung Launches iPhone-Killer In Europe and Now Facebook Wants To Make One)

But this suit may not come as a huge surprise after Steve Jobs told his biographer Walter Isaacson Apple planned to wage "thermonuclear war" against the Android phone. According to Isaacson, Jobs said:

"I will spend my last dying breath if I need to, and I will spend every penny of Apple's $40 billion in the bank, to right this wrong....

I'm going to destroy Android, because it's a stolen product. I'm willing to go thermonuclear war on this."

While iPhone sales are growing, it still trails behind Android when it comes to overall marketshare. According to Garnter, Android makes up 56% of the smartphone market versus Apple's 33%.

Apple's biggest Android competitor is Samsung (big surprise) which sold 38 million phones in the first quarter, reports Garnter. In the first quarter of this year, Apple sold 33 million iPhones, which is almost 100% more than the 17 million sold the previous year. Nokia trails behind in the number three spot, followed by Research in Motion.

Apple's attempt to ban the Galaxy s3 in the U.S. is not stopping stores like Best Buy (BBY) and carriers from taking presale orders for the latest Samsung phone. The Galaxy S3 will be the first phone to be available on all five network service providers here in the U.S, including AT&T (T) , T-Mobile, Sprint (S), U.S. Cellular (USM) and Verizon (VZ).

iPhone vs Telecom Operators: Why It Could Cost You

On another front, phone makers are facing pushback from cellular network operators. The telecom providers are vying to limit the amount of subsides given to consumers towards the purchase of a handset, which would make it more expensive to a new phone buy or upgrade.

"The operators are looking for a number of different ways to take back that profit," says Piecyk who dropped his rating on Apple stock to neutral on April 9 after discounting the risks posed by global operators. As The Daily Ticker reported in May (care of WSJ):

  • Carriers are adding or increasing upgrade fees for consumers who want to switch phones. AT&T (T) and Sprint (S) doubled their fee to $36, and Verizon (VZ) now charges $30.
  • Carriers are increasing monthly data subscription rates. All else being equal, this means customers will have less money to spend on new phones.
  • In Spain, two of the leading wireless companies--Telefonica (TEF) and Vodafone (VOD) --have stopped subsidizing handsets for new customers. Instead, they're focusing on retaining their existing customers, for whom they do offer subsidies. This will reduce their spending on device subsidies by 25%. (A third operator, Orange, still offers subsidies, and is trying to use this opportunity to gain share. Carriers the world over are watching closely).

Piecyk says this trend will also lead to "extending the upgrade cycle" and carriers "pushing new products like the Galaxy 3 or the next Windows 8 phone," which are priced considerably less than the iPhone.

The Future of Apple: Judging Tim Cook the CEO

Apple stock has jumped 50% since Cook to the helm at Apple in August 2011.

In that time, he's made a number of notable decisions, which were a distant glimmer under the management of Steve Jobs, including the announcement in March to offer shareholders a dividend.

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Tim Cook, Apple CEO

But Piecyk says it is "a bit too early" to judge Cook just yet.

"It is one thing to [rollout] an iPhone 4s and an iPhone 5, which are more evolutionary," he says. "But if and when he comes out with a new Apple TV or and iPad that shrinks in size that is going to be more on him and people are going to judge him by the success of that product than past management."

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